GOOGLE ANALYTICS

Thursday, October 5, 2017

MFID2
the name might sound like Nuclear weapon but for financial markets it’s going
to be something of that kind. January 3rd 2018 the European market
will witness one of the biggest reforms in the financial market. The recession
of 2008 gave birth to many new norms to save guard the investors. MFID2 is a
similar policy governing many segments of European financial markets going
ahead. The bond market which is one of
the biggest markets followed with complex products are going to take a huge
toll on the product manufacturers. In Simple terms MFID 2 means transparency in
non equity product trading which is herculean task for the EU product
manufacturers. At present, there is little data produced on how individual
securities trade, leaving many market participants in the dark. The new norm
requires publish information on the liquidity classification of financial
instruments and the sizes large in scale compared to normal market size and the
size specific to the instrument . European bond market will face the heat while
selling bonds in 2018.

Asian and Emerging markets Bonds Demand to Grow.

After
MFID2 is implemented Asian bond markets will become attractive as outflow of
capital will increase. Emerging markets bonds will also become attractive and
hence inflows will increase in debt instrument. Infrastructure bonds and other
bonds will soon find huge demand for the Asian markets in the coming 2018.
Corporate bonds and other masala bonds will become more attractive going ahead
and also low CAD of India makes it more lucrative followed with stable
currency,l ow inflation rates ,high level of reform polices and domestic growth
drivers. Data show that the average daily corporate bond investments have been
consistently rising since December 2016 and have achieved an approximate 42.3%
increase as on date. In mid-September, the percentage utilisation of the limit
for foreign portfolio investment in corporate bonds reached 99.99% indicating
foreign investors’ confidence in the Indian market.

Very recently RBI shifted masala bonds from being part of FPI
limits in corporate bonds to being subject to External Commercial Borrowing
(ECB) limits. The additional 18% headroom created will be available for further
investments by FPIs over the next two quarters.Currently the Indian bond market raised of Rs. 6.7 lakh crore in FY17, a 36% jump
over the preceding year’s figures.

If
you remember recently there have been some hybrid bonds which have been traded and
offered to investors and investments were also done. These bonds were of high
quality complicated bonds of hybrid nature where the bond indenture was never
explained in full to the clients. MFID2 will help to have a very clear
transparency about the holding of the same and the liquidity aspect of the
same. Investors will be better informed about these non equity based products.
Green bonds will be under huge threat as the parameter for the investors in
these bonds are expected to be socially strong in terms of credentials. Another key area which will get exposed is
inter -bank hedging which till now remained in closed doors. After MFID2 is
implemented all these hedging details will need to be exposed.

Selling
bonds will be difficult in the next year and this would affect currency and
investors as many of them will flock for redemption out of panic.

The biggest
pain will be for those investors who will not be able to withdraw from the small
self-administered scheme in January unless their scheme has met Mifid II rules.
Penison schemes will be under pressure if they don’t comply with MFID 2. Hence
the problem is going to create simply panic before and during that time frame. The
client has to wait until the trustees have applied to the London Stock Exchange
(LSE) for the document and the scheme has been registered. The catch point is
that in between if markets have fallen in the intervening period, the scheme
could lose money if the trustee carries out the trade in a down market.

Buyers
of the non equity products will have an open option to buy research or not
which earlier used to be part of the product in gamut. Transparency is the key.
US banks and its other financial arms that are holding these bonds as well as
looking ahead to buy such products in future will face one of the toughest days
coming ahead. It’s about unbundling the products and this will lead to quality
research output as well as many shops will be shut down and many research segments
to upgrade their works.

Data
will be public and European bonds will be under huge pressure going ahead as
closed doors transactions and other gimmicks comes to an end going ahead. From
January 3 2018, one of the EU’s most ambitious, packages of financial reforms
will be rolled out. Monopoly of the bond players and exchanges will come to an
end through this new law.

The
last 2 years European banks have been riding rough ride based on profitability issues
and liquidity injection where some banks came up with bond issues to save the
banks. Most of these bonds were invested by those who knew little about the
Hybrid aspect of the bonds. From banks to institutional investors, exchanges,
brokers, hedge funds and high-frequency traders all will come under the transparency
guideline and hence many of the bonds will face hard times as institutions will
have to report more information about most trades immediately, including price
and volume.

0
comments:

About Me

I am a economic,financial writer and research analyst. I am an Economist |Editor | Author | Columnist | Speaker|Strategist|. Digging out facts and making indepth analysis of financial matters is my life work.I love discussing and making financial strategies to meet the financial objectives of the life.At the same time I am an avid reader. Books are my passion. No matter how busy I am, I always manage to find time for reading. I also enjoy cooking good food, Hindi music & a good cup of coffee.One of my personal traits I am most proud of is being creative and artistic.

Total Pageviews

Search This Blog

VISTORS FOR THE DAY

SHARE IT

DISCLAIMER

All data and information provided on this site is for informational purposes only.The opinions expressed here represent my own .It does not provide stock tips.No person should use any data from this Blog as it belongs solely to the writer of the Blog.